December 2003

Medicaid Financing of State and County Psychiatric Hospitals

A common perception is that public psychiatric hospitals receive little or no Medicaid funds because of the Institutions for Mental Diseases (IMD) exclusion. This policy prohibits Medicaid reimbursement for care provided to individuals older than 21 years or younger than 65 years if the care is delivered in psychiatric institutions. Nevertheless, while States continue to provide substantial support to public psychiatric hospitals, in recent years Medicaid has funded an increasing share of the operations of these facilities. This study was undertaken to address the lack of comprehensive information regarding the nature and scope of such Medicaid support. The study identifies potential sources of Medicaid funds paid on behalf of public psychiatric hospitals and provides an estimate of the amount of such funds in 2001. The Medicaid funding experiences of public psychiatric hospitals in five States - Arkansas, California, Iowa, Maryland, and New Jersey - were examined in depth for the study.